Find companies with 'dominant' characteristics, strategist says

Catalyst Funds Chief Investment Officer and senior portfolio manager David Miller sits down with Julie Hyman to compare investing into the S&P 500 (^GSPC) versus stocks of industry leaders with monopolistic characteristics.

Also catch David Miller weigh the market's recent volatility alongside his outlook for major long-term upsides.

To watch more expert insights and analysis on the latest market action, check out more Morning Brief.

Video Transcript

00:00 Speaker A

Do you just buy the S&P 500 because they're heavily weighted in that index anyway? I suspect you're going to say no, as an active manager, but like what how do you think about it?

00:08 David

So, I think, you know, there there's, you know, there's old sayings about it's not good to predict things especially about the future. Uh but I think there are some bets that you can say are safe to not make. Meaning like we have this one fund, uh it's called the Monopoly ETF MPLY. And what we do there is we just focus on those companies that have great growth, uh have dominant market share, oligopolies or uh monopolies uh in their industry and you can see that EPS growth continuing. Whereas if you look at a company like an airline, they've got to apply to pay to fly those planes, uh no matter what's going on, no matter how bad the demand is, uh they got to pay those pilots and stewardesses uh no matter what. They never have a whole lot of pricing power. So if you take all those businesses uh that don't have those characteristics out of the S&P and you just uh put yourself in those companies uh that have that type of dominant characteristic. I think it's fairly easy to say that over a long run, uh those companies that have real moats should outperform the rest of those that are in perfect competition over a long period of time. So I don't think you have to predict the future. I think it's best to just eliminate the losers.

01:05 Speaker A

Gotcha. and focus on things that are have strong businesses now, rather than sort of predicting the future.

01:10 David

Exactly, yeah.

01:11 Speaker A

So, okay, so what happens between now and the end of the year and going into early next year for stocks broadly?

01:20 David

I I think we're still headed for a pretty good market. Not because things have to actually grow that much in terms of real terms, but if you look at what's going on from a macro perspective, they're talking about giving out $2,000 checks to everybody. Uh, they're

01:34 Speaker A

Of course they're talk I mean, but David, is that really going to happen? Are you you can't bank on that.

01:40 David

You can't bank on that, but they already have it enshrined in law that we're going to be running a 1.9 trillion dollar deficit. That's quantitative easing whether you like it or not. They're just increasing the money supply. Nobody is seriously believing that we're ever going to pay down that debt. We're just going to keep expanding it and debasing the dollar. If you're debasing the dollar, stocks should go up.

01:59 Speaker A

Gotcha. Okay. So that is broadly, I guess a good backdrop. Is there a big risk that you're worried about?

02:07 David

I think the real risks to the market are conceptually what happened in a 2022. If inflation really gets out of control and the Fed has to do something to address that inflation, uh at the expense of the economy, that's where you have a problem. But nobody's imminently talking about rate hikes. The questions are, are we going to keep it the same or cut?

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